2005 Supreme(AP) 846

Andhra Pradesh High Court
Crane Betel Nut Powder Works, Guntur - Appellant
Versus
Commissioner of Customs and Central Excise, tirupathi - Respondent
Decided On : 09-15-05

Headnote:(a) Central Excise Act, 1944 - Section 35-G - Central Excise Tariff Act, 1985 - Excise Duty - To attract duty, goods must satisfy test of marketability - Tariff schedule by placing goods in general and specific categories not aster basic character of leviability - Duty of excise being on production and manufacture which means bringing out new commodity, it is implicit that such goods must be useable, moveable, saleable and marketable.

       Held : WHILE the goods specified in the schedule are excisable goods, whethersuch goods can be subjected to duty would depend on whether they were produced or manufactured by the person on whom duty is proposed to be levied. The duty of excise being on production and manufacture, which means bringing out a new commodity, it is implicit that such goods must be useable, moveable. saleable and marketable. Any goods, to attract excise duty, must satisfy the test of marketability. The tariff schedule, by placing the goods in specific and general categories, does not alter the basic character of leviability. The duty is attracted, not because an article is covered in any of the items or it falls in the residuary category, but as it has been produced or manufactured and is capable of being bought and sold. The word manufacture implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use.

       Marketability, is an essential ingredient in order to be dutiable under the Schedule to central Excise Tariff Act, 1985.

       In terms of the Rules of Interpretation of the Excise Tariff Schedule, classification has to be determined according to the terms of the headings and relative Section or chapter Notes and the Rules of interpretation come into play and can be invoked only if the classification cannot be determined according to the terms of the headings and any relative section or Chapter Notes and provided such headings or Notes do not otherwise require. In other words if the headings, read in the light of the Section or Chapter Notes, are clearly determinative of the classification, the Rules for Interpretation cannot be invoked.

       The rule of interpretation, as contained in the chapter notes, would therefore be required to be given effect to for the purpose of classification in preference to the general rules of interpretation. The relevant headings in the tariff have to be interpreted and applied in the light of the Chapter Notes which are statutory and binding like the headings themselves. These Chapter Notes sometimes expand and sometimes restrict the scope of certain headings. In other words, the scheme of the Tariff Act is to determine the coverage of, the respective headings in the light of chapter Notes. In this sense, the Chapter notes have an over-riding effect over the respective heading.

       The definition "manufacture" under section 2 (f) is an inclusive definition. Clause (ii) of Section 2 (f) creates a legalfiction in the sense that goods, specified in the chapter Notes as amounting to manufacture, are deemed to fall within the definition of "manufacture" under Section 2 (f) (ii ). It is well settled that full effect must be given to the statutory fiction and it should be carried to its logical conclusion and to that end it would be proper and even necessary to assume all those facts on which alone the fiction can operate. The purpose and object of creating a legal fiction is well known. Once a fiction is created, upon imagining a certain state of affairs, the imagination cannot be permitted to be boggled when it comes to the inevitable corollaries there of.

       A process may be specified, either in the Section or Chapter Notes or in the Tariff entry, as amounting to manufacture. For the deeming provision in Section 2 (f) (ii), to come into play it must be specifically stated, in the chapter notes that a particular process amounts to manufacture.

       The classification, in the present case, is required to be determined having regard to the Chapter Notes. The product of the appellant falls within the expression "betel nut powder known as supari", as defined in note-4 of Chapter-21, since it is not in dispute that the product is a preparation containing betel nut. Under note 7 of Chapter-21 adoption of any other treatment to render the product marketable to the consumer is held as amounting to manufacture. In the case on hand, since Note 4 of Chapter 21 specifically states that the process indicated amounts to manufacture, the deeming provision in section 2 (f) (ii) of the Central Excise Act would apply. The products of the appellant would consequently be deemed to have undergone a process of manufacture and would be exigible to duty under sub-heading 2107-00 of Chapter 21 of the First Schedule to the central Excise Tariff Act. The classification, of the produce in question, as provided in rule 1 of the Rules of Interpretation of the central Excise tariff, is determined in terms of the Chapter Notes, and thus the other rules of Interpretation will not come into play.

       (b) Central Excise Act, 1944 - Section 35-G ; Central Excise Tariff Act, 1985 - Substantial Question of Law - Dispute related to classification of product betel-nut - As dispute relates directly and prorumately to rate of duty, appeal lie to Supreme Court.

       Held : The dispute, in the present appeal relates to classification of goods, which the cestat, on appreciation of the facts and the documentary evidence on record, has held to fall within Chapter S. ll No. 2107. 00. The CESTAT has exercised its discretion in a judicial manner and its conclusions are not contrary to law. We, therefore, hold that no substantial question of law arises for consideration in the present appeal necessitating its being entertained under section 35-G of the Central Excise Act.

       Explanation- (D) of Section 35-E of the central Excise Act provides that, for the purpose of that sub-section, determination ol the rate of duty, in relation to any goods includes the determination of a question whether any goods are excisable goods or whether any goods fall under a particular heading or sub-heading of the First Schedule of the Central Excise Tariff Act, 1957. Explanation (c) to Sec. 129-D (5) of the Customs act is in pan materia to Explanation (d) to section 35-E of the Central Excise Act. Applying the expression, used in Explanation (d) of Section 35-E, to other parts of the Central excise Act, and since the dispute in the present case regarding classification ol goods, relates directly and proximately to the rate of duty applicable thereto, an appeal would lie only to the Supreme Court, (against an order passed by the CESTAT), under section 35-L (b) of the Central Excise Act.